Divisibility and Tie Breaking Rules in Experimental Duopoly Markets1

This study investigates experimentally pricing behavior of sellers in duopoly markets with posted prices and market power. The two treatment variables are given by divisibility of the price space and tie breaking rules. A change in divisibility is modeled by making the sellers’ price space finer or coarser. The second treatment variable deals with the rule under which demanded units are allocated between sellers in case of a price tie. We find that lower divisibility tends to generate lower prices. Furthermore, posted prices and the incidence of perfect collusion are significantly higher under the sharing tie breaking rule than under the random (coin-toss) one. Puzzello: Department of Economics, Krannert School of Management, Purdue University, 403 West State Street, West Lafayette, IN 47907-2056, USA. E-mail: [email protected]. This research was supported by the Center of International Business Education and Research and the Purdue Research Foundation. We thank for constructive comments Gabriele Camera, Marco Casari, Tim Cason, and Dan Kovenock.